Determination of the coupon rate, Finance Basics

The partners are still unhappy about one of the features of your analysis, namely your assumption that the coupon rate of the bond is equal to 6% per annum. Their thinking is that it is the coupon rate which should be adjusted in such a way that the initial value of the bond is equal to the desired amount.

(a) Assume that the face value of the bond issue is equal to one million dollars and that the coupon rate is given by C = 6%+S where S is a spread which is chosen in such a way that the initial value of the issue is equal to par. Should S be positive or negative?

(b) Determine the value of the spread S under the assumptions that the strike price and the volatility of the relevant forward swap rate are given by K = 1and

σswap(t) = 0:41(T - t)e-0:65(T-t);

where T is the first fixing date of the underlying swap.

 

Posted Date: 2/18/2013 5:56:50 AM | Location : United States







Related Discussions:- Determination of the coupon rate, Assignment Help, Ask Question on Determination of the coupon rate, Get Answer, Expert's Help, Determination of the coupon rate Discussions

Write discussion on Determination of the coupon rate
Your posts are moderated
Related Questions
Interest Rate Levels and Stock Prices Interest rates contain two effects on corporate profits: a) Since interest rate is a cost, and like the higher the rate of interest the

Advantages of Floatation of New Shares 1. It facilitates the matter of securities to increase new finance, creation a company less dependent on retained earnings and banks.

Access the relevant authoritative literature on accounting for the transfer of financial assets. What conditions must be met for a transfer of receivables to be accounted for as a

a.  In the accompanying diagram (which represents the market for chocolate candy bars), the initial equilibrium is at the intersection of S1 and D1. Circle the new equilibrium if t

Significance of Cost of Finance The cost of capital is Significance since of its application in the following areas as: i) Long-term investment decisions - In capital b

Financial Planning Project Instructions: You will serve as a financial advisor for your client to develop a financial plan. You can compile all the worksheets introduced in eac

Which depreciation method would produce the higher NPV and how much higher would it be?


Supersoftware, Inc. earns a total of $200 million each year to pay out to their 20 million shareholders. They are in a very competitive business and have found it a struggle to com

Question 1: i) Discuss  the main risks facing a retail bank in its traditional business of deposit taking and lending? ii) How can a bank manage the risks related to credit